Finance ministers of the European Union (EU) failed on Wednesday to strike a deal on updating the bloc's value added tax (VAT) rules.
Austrian Finance Minister Karl-Heinz Grasser, whose country holds the current EU presidency, told journalists after a monthly ministerial meeting in Luxembourg: "We failed to reach a consensus for the VAT package."
Grasser and the European Commission, the EU' s executive arm, are eager to settle on a common tax standard in the EU in an age of electronic commerce.
Austria's proposals would shift the application of VAT from the country of a service supplier to the country of consumption.
The current method, which was due to expire on June 30, has some Internet companies charging VAT in the country where their customers live, while services such as telecommunications and pay TV are sometimes charged in the country where the supplier is headquartered.
Germany, Luxembourg and Portugal were against changes, effectively vetoing a proposal that needed the backing of all 25 EU member states.
Although in most cases service suppliers and consumers are in the same country, the emergence of electronic trade has encouraged Internet, telecommunications and pay-television companies to set up shops in countries with the lowest VAT rates.
Luxembourg and the Portuguese island of Madeira have in particular benefited from the current system. At 15 percent, Luxembourg has the lowest VAT rate normally allowed in the EU while Madeira enjoys a rate of 13 percent under a special arrangement.